The accounting policies set out in the following correspond, with the exception of the change in presentation Note 4 and Note 32, to the methods applied in the previous financial year.

Subsidiaries

The Financial Statements for the year ended 30 September 2009 incorporate the Financial Statements of Demag Cranes AG and 37 (2007/2008: 36) domestic and foreign subsidiaries. The Financial Statements for financial year 2008/2009 additionally include Gottwald Port Technology Netherlands B.V., Delft, Netherlands, established in the first quarter.

Subsidiaries are companies that are controlled by Demag Cranes AG, meaning that Demag Cranes AG, by virtue of holding a majority of their voting rights or through other means, has the power to govern their financial and operating policies so as to obtain benefits from their activities. Investments in subsidiaries that are of minor overall significance to the presentation of the financial position and performance of the Group are measured at cost less any impairments and accounted for under other investments as investments in other affiliated companies.

Subsidiaries are included in the Financial Statements from the date Demag Cranes AG obtains control and cease to be included when control is lost. The results of subsidiaries acquired and disposed of during the year are included in profit or loss from the effective date of acquisition and up to the effective date of disposal.

The Financial Statements are prepared on the basis of uniform Group accounting policies. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Minority interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Group’s equity in the consolidated subsidiaries. Losses applicable to a minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

All subsidiaries of Demag Cranes AG as at 30 September 2009 are listed after the Notes.

Interests in Joint Ventures

Demag Cranes AG includes one joint venture (MHE-Demag (S) Pte. Ltd., Singapore) in its Financial Statements. A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control.

The Group’s share of the profits, losses, assets and liabilities of joint ventures are accounted for in the Financial Statements using the equity method.

Under the equity method, the interest in a joint venture is initially recognised in the Financial Statements at cost. The carrying amount is subsequently increased or decreased by changes in the Group’s share of the net assets of the joint venture after the date of acquisition and by any impairment of its interest in the joint venture. Losses of the joint venture that exceed the Group’s interest in the joint venture are provided for only to the extent that the Group has incurred legal or constructive obligations to cover them. The financial year of the Group’s one joint venture is the calendar year. The figures included in the Demag Cranes AG Financial Statements are those from interim financial statements as at 31 August 2009.

The share of profit from equity-accounted investments reported in the Income Statement is Demag Cranes AG’s share of profit from the joint venture.

The joint venture is shown in the list of subsidiaries, joint ventures and investments as at 30 September 2009, after the Notes.

The cost of sales reported in the Income Statement consists of all costs directly attributable to the production process. These include direct material, direct labour, indirect costs such as depreciation and impairments of production plant and production-related intangible assets, write-downs on inventories, and production-related administrative overheads as appropriate.

Research and Development Expenses

Research expenses are recognised in the period they are incurred.

Expenditure is incurred for development activities when research findings or other knowledge are applied to a plan or design for the production of new or substantially improved products or processes. An intangible asset arising from development is recognised if the outcome is technically and commercially feasible, it is considered probable that the product or process to be developed will generate future economic benefits, and the Group has adequate resources to complete the development. The development expenditure recognised as an intangible asset includes direct material, direct labour and allocated overheads. Other development expenses are recognised as expense in profit or loss when incurred.

Capitalised development expenses are presented in the Balance Sheet net of cumulative amortisation and impairments. Development expenses recognised as assets are amortised on a straight-line basis over the estimated period in which the products will be sold. The Group carries out annual impairment testing during the development phase.

Tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, using the tax rates that have been enacted by the end of the reporting period. Current tax relating to items recognised directly in equity is likewise recognised directly in equity.

Deferred tax is accounted for using the balance sheet liability method. It is measured by applying the appli-cable tax rate to temporary differences between the carrying amounts of assets and liabilities in the Financial Statements and the tax bases used in the computation of taxable profit for each company. The applicable tax rate is the rate prevailing at the balance sheet date or the rate expected to apply when the temporary differences reverse, based on tax laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits. The carrying amount of deferred tax assets is reviewed at each balance sheet date and adjusted to reflect any change in the probability that the benefits can be utilised. The carrying amount of each deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the deferred tax asset to be utilised. Any unrecognised deferred tax assets are reassessed at each balance sheet date and recognised to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered. Deferred tax liabilities are recognised for all taxable temporary differences.

Deferred tax liabilities are not recognised for taxable temporary differences resulting from the initial recognition of goodwill or the initial recognition of another asset or liability in a transaction which is not a business combination and, at the time of the transaction, affects neither taxable profit nor net income. Deferred tax liabilities are not recognised for taxable temporary differences associated with investments in subsidiaries and associates or with interests in joint ventures if it is not probable that the temporary difference will reverse in the foreseeable future or that taxable profit will be available against which the loss arising on reversal of the temporary difference can be utilised.

Demag Cranes AG sets off current tax assets and current tax liabilities if it has a legally enforceable right to do so relating to income taxes levied by the same taxation authority.

Value-added tax refundable by or payable to the taxation authority is accounted for by Demag Cranes AG as part of other non-financial assets and other non-financial liabilities respectively.

Goodwill and Negative Goodwill

Goodwill arising on acquisition is the excess of the cost of a business combination over the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is subsequently measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, which is done at least annually, the Group allocates goodwill to the cash-generating units that are expected to reap synergies from the business combination. On disposal of part of a cash-generating unit to which goodwill has been allocated, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Goodwill recognised on acquisition of an equity-accounted investment is included in the carrying amount of the Group’s investment and is assessed for impairment as part of that investment.

If after reassessment of all relevant amounts the Group’s share in the acquired assets and liabilities of a subsidiary exceeds the cost of the business combination, Demag Cranes AG recognises the excess (negative goodwill) immediately in profit or loss.

Investment Properties

Investment property consists of land and buildings held by Demag Cranes AG to earn rentals or for capital appreciation or both.

Investment property is measured at cost less any accumulated depreciation and any accumulated impairment losses. Depreciation is charged as for property, plant and equipment and is recognised as expense in profit or loss.

An investment property is derecognised on disposal or when it is permanently withdrawn from use and no further economic benefits are expected from its disposal.

Impairment of Goodwill, Other Intangible Assets, Property, Plant and Equipment and Investment Properties

The Group assesses at least at each balance sheet date whether there is any indication that goodwill, other intangible assets, property, plant and equipment and investment properties are impaired. If any such indication exists, the asset is tested for impairment.

Goodwill, other intangible assets with indefinite useful lives and intangible assets not yet available for use are also tested for impairment at each balance sheet date irrespective of whether there is any indication that they are impaired. If the recoverable amount of an asset or the cash-generating unit to which it belongs is less than its carrying amount, the difference is recognised in profit or loss as an impairment loss. An impairment loss recognised for an asset or a cash-generating unit is first allocated to reduce the amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. If an impairment ceases to exist, the impairment loss is reversed up to a maximum of cost less any accumulated depreciation or amortisation. Impairment losses recognised for goodwill are not reversed.

Other non-current assets are tested for impairment if there is any indication that the assets are impaired or that an impairment loss recognised in prior periods may no longer exist. An impairment loss recognised in prior periods is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The increased carrying amount attributable to a reversal of an impairment loss may not exceed the recoverable amount or the carrying amount that would have been determined, net of amortisation or depreciation, had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss.

Leasing

Leases that transfer substantially all the risks and rewards incidental to ownership of an asset are classified as finance leases. At the commencement of the lease term, finance leases are recognised as assets at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. The future lease payments are recognised in the balance sheet under loans and borrowings.

Lease payments are apportioned in accordance with the effective interest method between the finance charge and the reduction of the outstanding liability so as to produce a constant periodic rate of interest on the remaining balance of the liability. Interest expenses are recognised immediately in profit and loss.

Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the Group’s benefit from the use of the leased asset. Contingent payments under an operating lease are recognised as an expense in the period they are incurred. Incentives to enter into an operating lease are recognised as a reduction of rental expense over the lease term, on a straight-line basis unless another systematic basis is more representative of the time pattern of the Group’s benefit from the use of the leased asset.

Inventories

Inventories are measured at the lower of cost and net realisable value, using average cost. Cost includes direct material, direct labour and allocated production overheads including depreciation on factory buildings and equipment. Inventories are written down as appropriate if they have become wholly or partly obsolete or can no longer be readily sold. Borrowing costs are not recognised as part of the cost of inventories.

Construction Contracts

Construction contracts that meet the criteria in IAS 11 are accounted for using the percentage-of-completion method. The percentage of completion is normally determined for this purpose according to contract costs incurred to date as a percentage of total contract cost (the cost-to-cost method). Where the outcome of a construction contract cannot be measured reliably, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable (the zero-profit method). The gross amount due from or to customers for contract work is presented under trade receivables or trade payables as appropriate. The gross amount due is equal to cost incurred plus recognised profits, less any recognised losses and progress billings up to a maximum of work performed. Additional amounts paid by customers are reported in liabilities as advance payments received. Any anticipated losses are recognised immediately in full in profit or loss. Further information is provided in Note 20.

Financial Instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. The Group recognises a financial instrument on its balance sheet when it becomes a party to the contractual provisions of the instrument. Financial instruments are recognised and derecognised on the trade date or settlement date.

As in the previous year, there were no reclassifications of financial instruments in the Group during the year under review.

Primary Financial Instruments

Financial assets and financial liabilities are initially recognised at fair value plus transaction costs, except financial instruments at fair value through profit or loss, which are recognised at fair value without transaction costs. Financial assets not at fair value through profit or loss are tested at each balance sheet date for impairment. The fair value of financial instruments traded on organised markets is determined using the quoted price on the balance sheet date. If the Group has financial instruments for which there is not an active market, their fair value is determined by using a valuation technique. For the purpose of subsequent measurement, financial instruments are classified into categories as follows:

• Held to Maturity

This category consists of financial assets quoted in an active market with fixed or determinable payments and fixed maturity that the Group has the intention and ability to hold to maturity. Financial assets held to maturity are measured at amortised cost using the effective interest method, less any impairment losses. The Group does not have any financial instruments held to maturity.

• Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. In the Demag Cranes Group, this category mainly consists of trade receivables and cash and cash equivalents. These are measured at amortised cost using the effective interest method less accumulated impairment losses. Receivables that carry no interest or that bear an off-market interest rate are measured at the discounted present value of future cash receipts. Loans and receivables are derecognised on settlement.

• At Fair Value Through Profit or Loss

This category contains two subcategories: held for trading, and designated as at fair value through profit or loss. These assets are measured at fair value. Changes in their fair value are recognised in profit or loss. The Group has no financial instruments in the “designated as at fair value through profit or loss” category.

• Financial Assets Available For Sale

This category encompasses all financial assets which, based on objective criteria, are not classified in any other IAS 39 category or which the Group has designated as available for sale. Available-for-sale financial assets at Demag Cranes AG mainly comprise investments. These assets are measured at fair value. Gains and losses arising from changes in their fair value are recognised directly in equity in the investments revaluation reserve, except for impairment losses and foreign exchange gains and losses on monetary assets, which are recognised directly as income or expense in profit or loss. When the assets are derecognised, the cumulative gain or loss previously recognised in equity is recognised in profit or loss. Available-for-sale financial assets whose fair value cannot be reliably determined are measured at cost less any accumulated impairment losses.

• Financial Liabilities Measured at Amortised Cost

Financial liabilities in this category are measured using the effective interest method, recognising the interest expense in accordance with the effective interest rate.

Derivative Financial Instruments

The Group uses hedging to manage interest and exchange rate risk. The hedging instruments used by the Group mainly consist of foreign exchange contracts and interest rate swaps.

All derivative financial instruments are recognised as financial assets or financial liabilities and measured at fair value at the balance sheet date. Changes in the fair value of derivative financial instruments are normally recognised as income or expense in profit or loss, with the exception that the portion of the gain or loss on a derivative that is determined to be an effective cash flow hedge is recognised directly in equity. The ineffective portion is recognised immediately in profit or loss. The gains or losses recognised in equity are reclassified to profit or loss in the same period or periods during which the hedged forecast transaction affects profit or loss. If the hedge of a forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses recognised in equity comprise the cost of the asset or liability on initial recognition. If the hedging instrument expires or is otherwise terminated without replacement or rollover into another hedging instrument, or if the hedge no longer meets the criteria for hedge accounting, the cumulative gain or loss recognised in equity remains separately in equity until the forecast transaction or firm commitment occurs. If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss recognised in equity is reclassified to profit or loss. Where the Group uses a derivative financial instrument as a fair value hedge, gains and losses on the hedging instrument and the hedged item are recognised in profit or loss. When the hedging instrument terminates or no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of the hedged item attributable to the hedged risk is reversed to profit or loss from that date. Derivatives to which hedge accounting is not applied are given the same accounting treatment as the “at fair value through profit or loss” category.

Impairment of Financial Assets

The Group assesses financial assets classified as loans and receivables or available for sale for impairment at each balance sheet date. A financial asset is impaired if there are indications that the Group may not recover part of its initial investment and the present value of the future cash flows or the fair value of the financial asset is less than its carrying amount. On an available-for-sale equity instrument, a significant or prolonged decline in the fair value of the financial instrument below its cost is to be considered objective evidence of impairment. Financial assets are assessed for impairment individually or on a portfolio basis. The Group makes appropriate provision for all identifiable credit risks. The remaining credit risk from financial instruments corresponds to their carrying amounts. The impairment loss on a financial instrument measured at amortised cost is the difference between the asset’s carrying amount and the present value of estimated future cash flows from the asset discounted at its original effective interest rate. An impairment loss directly reduces the carrying amount of all affected financial instruments except for trade receivables, where impairment losses are recognised through an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are accounted for by reversing the allowance account to profit or loss.

If in a subsequent period the fair value of an available-for-sale financial instrument other than an equity instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss and any amount in excess of amortised cost is recognised directly in equity. Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for sale are not reversed. Any increase in fair value after recognition of an impairment loss is recognised directly in equity.

Derecognition of Financial Instruments

A financial asset is derecognised when the contractual rights to the cash flows from the asset expire or it is transferred to another party with all the risks and rewards of ownership. If the Demag Cranes Group neither transfers nor retains substantially all the risks and rewards of ownership and retains control of a transferred asset, it continues to recognise the financial asset to the extent of its continuing involvement and recognises as a liability any obligations created in the transfer. If the Demag Cranes Group retains substantially all the risks and rewards of ownership of a transferred financial asset, it continues to recognise the asset and recognises a secured loan for the consideration received.

The Demag Cranes Group derecognises a financial liability when the Group’s obligation is discharged or cancelled or expires.

Financial Instruments: Other Investments

The other investments balance sheet item consists of two sub-items – associates and long-term securities – and is classified as available for sale. Long-term securities are measured at fair value. This is determined by prices quoted in an active market. Gains and losses arising from changes in fair value are recognised directly in equity, taking account of any deferred tax. On disposal, the cumulative gain or loss previously recognised directly in equity is recognised in profit or loss. The appropriate classification of securities is determined on purchase and reviewed at each balance sheet date. There were no reclassifications in the year under review.

The Group measures investments in associates at cost less accumulated impairment losses, as their fair value cannot be reliably determined. No impairment losses were recognised in the year under review.

Financial Instruments: Trade Receivables

Trade receivables are classified in the loans and receivables category. They are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method, less accumulated impairment losses. Non-current receivables are measured at the present value of the estimated future cash flows discounted at the effective interest rate.

Financial Instruments: Other Financial Assets

Other financial assets other than derivative financial instruments are measured at amortised cost less accumulated impairment losses. These assets are classified in the loans and receivables category. The measurement of derivative financial instruments is explained in a separate section (Derivative Financial Instruments).

Financial Instruments: Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and in banks, bank deposits on up to one-day notice and securities with a residual maturity of up to three months at the acquisition date. These holdings are classified in the loans and receivables category. The Group measures cash and cash equivalents at amortised cost.

Share-Based Payment

The Group has an equity-settled share-based payment scheme (Matching Stock Program) for executives and managerial employees. The amount of the equity-settled payment obligation is the fair value of the options at the grant date. This is independently assessed using Monte Carlo simulation and is recognised as an expense in personnel expenses on a straight-line basis over the vesting period with a corresponding increase in additional paid-in capital.

Provisions for Pensions and Similar Obligations

The Group has both defined contribution and defined benefit plans. Contributions to defined contribution plans are recognised as an expense in profit or loss in the year employees have rendered service entitling them to the contributions.

The present value of the Group’s obligation under defined benefit plans is measured separately for each plan using the projected unit credit method, based on the estimated amount of benefit employees have earned up to the balance sheet date. The Group obtains an actuarial valuation to determine the amount of its obligation each year. The Group’s net obligation is determined by subtracting the fair value of plan assets from the present value of the defined benefit obligation. The discount rate used is the yield at the balance sheet date on senior corporate bonds with maturities approximating to the duration of the benefit. Experience adjustments and changes in actuarial assumptions over time can result in differences between the actual and expected benefit obligation and the actual and expected return on plan assets. The resulting actuarial gains and losses are recognised directly in equity and are presented in the Statement of Recognised Income and Expense. If plan benefits are subsequently increased, the share of the present value of the increased benefits that relates to employees’ past service (the past service cost) is recognised as expense in profit and loss on a straight-line basis over the period until the benefits become vested. To the extent that the benefits are vested immediately, the past service cost is recognised immediately.

Other Provisions

A provision is recognised if at the balance sheet date the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the time value of money is material, provisions are recognised at the discounted present value of the expected amount of the obligation. The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and risks specific to the liability if applicable. Provisions for the estimated cost of product warranties are recognised when products are sold. The Group recognises restructuring provisions when a detailed formal restructuring plan has been drawn up and announced to the parties affected. All changes in estimates are recognised in profit or loss. No provision is recognised for costs that need to be incurred to operate in the future. Provisions for onerous contracts are recognised as soon as it is apparent that the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

Financial Instruments: Loans and Borrowings

Interest-bearing loans and borrowings are initially recognised at fair value less transaction costs incurred on inception. Subsequent to initial recognition, interest-bearing loans and borrowings are measured at amortised cost, with the difference between the initial amount and the repayment amount being recognised in profit and loss over the loan term using the effective interest method. The gain or loss arising from extinguishment and derecognition of a financial liability is recognised in profit or loss.

Financial guarantee contracts are initially measured at fair value less any transaction costs directly attributable to their issue. They are subsequently measured at the higher of the amount needed to settle the current obligation at the balance sheet date and the amount initially recognised less cumulative amortisation.

Financial Instruments: Trade Payables

Trade payables are financial liabilities that the Group measures at amortised cost using the effective interest method.

Financial Instruments: Other Financial Liabilities

Other financial liabilities mainly consist of derivative financial instruments, both in designated hedging relationships and otherwise. Their measurement is explained in a separate Derivative Financial Instruments section.

Contingent Liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events, or a present obligation where it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability.